Microsoft ascended because it disrupted an incumbent (or two) and
is descending because it’s being disrupted by an entrant (or two).
The Innovator’s Dilemma is very clear on the causes of failure: To
succeed with a new business model, Microsoft would have had to
destroy (by competition) its core business. Doing that would, of
course, have gotten Ballmer fired even faster.

I strongly disagree with Dediu on this one. Vehemently.

Look no further than mobile. Microsoft correctly saw that mobile was important to the industry. They saw this early — “Pocket PC” devices first appeared in 2000, and by 2003 they had “Windows Mobile”. They blew it. They had a market lead at some point, but during a time when the handheld market was tiny. The technology wasn’t there yet to make mobile computing desirable to the mass market. By the time the technology was there, when Apple unveiled the iPhone in 2007, Microsoft was not only caught flatfooted, but Ballmer himself seemed incapable of recognizing just how remarkable the iPhone was.

Microsoft, in theory, could have produced the iPhone first — not the actual iPhone, of course, but the game-changing device that set the stage for the future where mobile is the primary computing platform for most people, most of the time. That wouldn’t have disrupted Microsoft’s lucrative existing businesses — or at least not immediately. And if anything, it might have helped shore up Microsoft’s Office business for another generation.